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Evaluating an Organizations Financial Position

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Added on  2020-04-07

Evaluating an Organizations Financial Position

   Added on 2020-04-07

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Running head: GROUP ASSIGNMENT1Group AssignmentStudent’s NameInstitutionDate
Evaluating an Organizations Financial Position_1
GROUP ASSIGNMENT2Financial Analysis of Gelato Industriesa)Gelato Industries financial ratios for 2015 and 2014Industryaverage20152014Current ratio280,600/89700= 0.9063,125/34375 = 1.84Quick ratio0.8(80,600-59,150)/89700= 0.24(63,125-36,250)/34375= 0.78Averagecollection period37 days365/(240,000/20,800)=31.63 days365/(112,500/15,625)=50.69 daysInventoryturnover2.5240,000/59,150= 4.06112,500/36,250= 3.10Debt ratio58%119,535/195,000= 0.6170,313/140,625= 0.50Interestcoverage ratio3.842,000/9,094= 4.6218,000/5,719= 3.15Operating profitmargin10.00%42,000/240,000= 0.1818,000/112,500= 0.16Total assetturnover1.14240,000/195,000= 1.23112,500/140,625= 0.80Fixed assetturnover 1.4240,000/114,400= 2.10112,500/77,500= 1.45Return on assets11.40%42,000/195,000*100%=21.54%18,000/140,625*100%=12.80%Return on equity9.50%42,000/75,465*100%=55.65%18,000/70,312*100%=25.60%b)Gelato’s financial position as at 2014 In evaluating an organization’s financial position, liquidity, profitability, assetmanagement efficiency and capital structure ratios are very useful (Akhtar, 2014). Thesewould assist in comparing current financial performance of the company and enhance easieranalysis of its efficacy and risk. Liquidity AnalysisThis analysis entails assessment of an organization capacity to settle all its short-termfinancial needs (Sharma & Sharma, 2014). The key ratios that are used in measuring GelatoIndustries liquidity level include current and quick ratios.Current ratio
Evaluating an Organizations Financial Position_2
GROUP ASSIGNMENT3This ratio is used in measuring an organization’s capacity in repaying all its short-term debt obligations such as salaries payables and account payables (Sharma & Sharma,2014). Here, a higher current ratio shows higher liquidity status of an organization while alower one shows less liquidity status. Based on the financial information of Gelato Industries,it is evident that its current ratio for the financial year 2014 was 63,125/34375 = 1.84.Quick ratioThe ratio is very significant in measuring an organization’s short term liquidity and inmeasuring an organization’s capacity to settle its short-term debts using quick assets (Sharma& Sharma, 2014). With these considerations, Gelato Industries quick ratio for the financialyear 2014 was (63,125-36,250)/34375 = 0.78.On overall, based on the current and quick ratio for the year 2014, it is clear thatGelato was financially liquid in that its current assets and quick ratio were relatively higherindicating its capacity to settle its short-term debts. Capital Structure AnalysisThis analysis is used in assessing financial growth and health of an organization(Akhtar, 2014). The analysis helps in measuring how an organization finances its operationsand growth through different sources of finances. Debt ratioThis ratio shows financial leverage of an organization. It usually indicates percentageof total assets that is financed by total liabilities (Arnold, 2011). Here, a higher debt ratio issaid to shows greater leverage and high financing risk. With these considerations, GelatoIndustries debt ratio for the financial year 2014 was70,313/140,625= 0.50.Interest coverage
Evaluating an Organizations Financial Position_3

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